By Geoff Kirbyson
Renting is a great option for students and young couples but eventually it’s time to move up to the big leagues and own a house or condominium.
Sure, it’s nice to have the relatively worry-free lifestyle when you live in an apartment building or a floor of a house and aren’t tied down long term to any property or even city. You can pay your rent and phone bill every month while leaving the pesky property taxes and utilities to your landlord. But your older (and wiser) self will thank you the earlier you can get into home ownership, said Blair Sonnichsen, Realtor and past president of WinnipegREALTORS.
“When I make my mortgage payment every month, my equity position improves. When I rent, the money I pay goes towards paying somebody else’s equity position. While I’m free from most maintenance responsibilities and risks as a tenant, when I leave, I leave behind all that I’ve paid,” he said.
Equity, of course, is the difference between what a property is worth and what you owe on it.
Building up equity in your home can help you in several non-housing ways, too. If you want to borrow money from your bank or credit union for whatever reason — home improvements, a new vehicle, a cottage or investments — equity provides the necessary leverage to qualify you for that money.
Perhaps the biggest transition for home buyers is adjusting their lifestyles and possessions to their new space. For example, the bedroom suite that they bought for their spacious apartment likely won’t fit in the more cramped confines of their starter home or the big-screen TV that looked great on their apartment wall might completely overwhelm their living room.
There’s also a big adjustment to make financially. If your monthly budget is $1,400, you’ll quickly find what you pay in rent doesn’t go nearly as far in a house. Home insurance, property taxes and utilities will whittle down your buying power. The general financing rule is for every $6 you have in annual income, you can get $1,000 in mortgage.
So, let’s say your fixed expenses are $500 per month. The remaining $850 could help you get a mortgage of about $140,000. When you factor in a downpayment of 10 per cent, you’re looking at a house worth a little north of $150,000. A couple of decades ago, that would have been quite the place but many would-be homeowners are in for a rude awakening in 2018.
“Young adults today like to step out of their parents’ home into their first home of an equal quality of life. For most people, that’s not possible. That’s a big adjustment,” he said.
While landlords are usually looking for tenants to move in as quickly as possible, that’s often not the case with home sales and renters need to be prepared for that, Sonnichsen said.
“I’ve had clients say to me, ‘we’re getting married in July and want to move into our new home in September. Should we start looking now?’ The answer is ‘no,’ because (sales) are closing in 60 to 90 days,” he said.
Once you decide to make the transition, you’re probably going to want the advice of a Realtor to choose the home that will best meet your needs and expectations. But there’s more to it than looking in the Yellow Pages (ask your parents) or going online. Sonnichsen recommends visiting a few open houses, not necessarily to check out the kitchens and bathrooms — although you can do that, too — but to meet the Realtors putting them on.
“You’ll see the Realtor that sits on the couch and doesn’t acknowledge the people in the room and you’ll have the Realtor who has snacks and treats, is prepared and talks to the visitors. I encourage homebuyers to interview their agent. An easy place to find a Realtor is a public open house,” he said.
A Realtor can provide all the information you’ll need to make the right decision about making the move from rent to building your home equity. They’ll have the expertise you need and help you with managing your options.